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SHARES - The Basis of Corporate Ownership

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Shares of a corporation are the units of ownership in a company's capital (also referred to as stocks or equity). When a corporation issues shares, it divides its ownership into pieces, which are then sold to investors, who become the corporation's shareholders.

A share represents a fractional ownership interest in the corporation. This means a shareholder owns a piece of the company and has a claim to a portion of its assets and earnings.

• Raising Capital: Corporations issue shares to raise money (capital) to fund operations, expansion, or new projects.

• Ownership Rights: Owning shares grants the shareholder certain rights, though the specific rights can vary depending on the type or "class" of share.

• Limited Liability: A key feature is that shareholders are typically not personally liable for the corporation's debts. Their financial risk is limited to the amount they invested to buy the shares.

While the specific rights are outlined in a company's Articles of Incorporation, shares generally grant the holder these fundamental rights:

• Right to Vote: The right to vote on major corporate matters, such as electing the Board of Directors and approving mergers. This is usually associated with common shares.

• Right to Dividends: The right to receive a proportional share of the company's profits when the Board of Directors declares a dividend.

• Right to Residual Assets: The right to a proportional share of the remaining assets if the company is liquidated (dissolved) and all creditors and bondholders have been paid.

The two most common types of shares are:

1. Common Shares

• Voting Rights: Usually comes with voting rights, giving shareholders a say in company management.

• Claim on Assets/Earnings: Last in line for claims on the company's assets and earnings (behind creditors, bondholders, and preferred shareholders).

• Growth Potential: Offers a higher potential for capital appreciation (the share price increasing) as the company grows.

2. Preferred or Special Shares

• Voting Rights: Typically do not have voting rights.

• Claim on Assets/Earnings: Have a priority claim on dividends and company assets over common shareholders, meaning they get paid first.

• Dividends: Often pay a fixed dividend, making them behave somewhat like bonds. This priority status generally makes them a less risky investment than common shares.

When corporate matters require professional legal advice and strategic direction, look to the experienced legal representation that corporate clients have relied upon for over two decades. To schedule an initial consultation, contact our law firm at strong>403-400-4092 [Alberta], 905-616-8864 [Ontario] or via email at Chris@NeufeldLegal.com.